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Pran Katariya @KatariyaPran
, 6 tweets, 2 min read Read on Twitter
I would say a BS is an event where the Index opens gap down 5% or a Stock 10%. In the last few years this may have happened once or twice. This will leave you no room to adjust and you will have a big loss in an undefined Risk Strategy and max loss in a defined one
In a defined Risk Strategy you will suffer the max loss much faster and it will take out 2-3:months of your Profit. In an undefined Risk strategy you have more room before you start suffering big losses. The only Protection is to Trade small. Small is relative to account size.
Put on small Positions on different days and different Strikes in the same underlying. Diversify the number of underlying-maybe 7 or 8 at least. Diversify sectors in which these underlying are. Diversify strategies in all 3 directions-up, down and neutral
At any point do not have more than 60-70% of your Capital deployed. Keep your powder dry for fresh opportunities or adjustments. Should not have more than 2% of your Capital at Risk in any one Position with Risk being calculated with generous view on how much the Market can move.
Take a vacation when the Vix is at 30-35. Historically big moves generally come when it as at or above these levels. Ironically going by my definition many conservative Traders regularly bet on a BS event every quarter. It's called the Earnings Trade-which I personally avoid.
Conservative Traders should take Trades which are Profitable over a wide Range and where there is plenty of time to adjust and let the edge play out. Dont only depend on high vol to initiate Trade. It can stagnate, remain low over a long time or go on increasing as it did in 2008
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